FRC publishes new accounting standards for micro-entities and small companies

The Financial Reporting Council has published a new reporting standard, FRS 105, which will apply to very small companies, known as "micro-entities". It has also withdrawn the Financial Reporting Standard for Smaller Entities and replaced it by a new Section 1A of FRS 102 for small companies. The changes are largely in response to the implementation of the Accounting Directive (2013/34/EU).

FRS 105 is based on the main Financial Reporting Standard applicable in the UK, FRS 102, but its accounting requirements are simplified to adapt them to the smaller and simpler nature of micro-entities. It must be applied by all small companies qualifying as micro-entities which choose to prepare their financial statements under the optional reporting framework for micro-entities (introduced by the Small Companies (Micro-Entities' Accounts) Regulations 2013).

Companies will qualify as micro-entities if they meet two of the following three criteria:

  • their annual turnover is not more than £632,000;
  • their balance sheet total is not more than £316,000; and
  • their average number of employees is not more than 10.

Both small and micro-entities are only required to produce a balance sheet and a profit and loss account, but the additional simplifications introduced for micro-entities by FRS 105 include removing the need to recognise deferred tax balances and simpler treatment for defined benefit pension plans and business combinations.

Section 1A of FRS 102 for small companies largely replicates the FRSSE but the eligibility criteria have been raised, so many more companies will now qualify for the small company regime.

Companies will qualify as small if they meet two of the following three criteria:

  • their annual turnover is not more than £10.2m;
  • their balance sheet total is not more than £5.1m; and
  • their average number of employees is not more than 50.

The FRC has also made amendments to FRS 100 and FRS 101 to reflect the introduction of FRS 105 and section 1A of FRS 102.

The changes are effective for accounting periods beginning on or after 1 January 2016, but can be adopted early for accounting periods ending on or after 1 January 2015.

Click here for further details, including links to FRS 105, amendments to the other standards and an overview of the financial reporting framework.​